When to use short-term commercial loans

Most firms have traditionally gone to commercial banks for help with finance in the form of term loans. These may have had short or long maturities, depending on financial circumstances or the purpose of the loan.

Often firms really need short-term loans rather than long-term debt financing which can be a burden on the organisation once the initial problems of finance or supply have been overcome. This short-term solution will typically have a maturity of one year or less and help meet your immediate needs without committing you to long-term repayments.

Essential

These loans are available for a start-up, but firms will have to present extensive documentation and projected financial statements explaining how they will pay the loan back. The UK government offers an alternative via their start-up loan scheme. This reflects the fact that short-term funding is essential to the economy, as without this SMEs cannot operate efficiently. The funds are often used to buy inventory, substitute working capital shortfall and help the company to grow.

Some firms will have a seasonal book and may have to build-up stock at a specific time of year. A short-term loan will help with this, and the firm will be able to repay it at the end of their busy sales period.

Sometimes the need may be less regular. Late receipts can put payrolls and expenses under pressure, and again, a short-term financial boost can alleviate these problems until payments start to come in. Evening out cash flow in this way will help rather than hinder the business.

Advice

Different parts of the country will have specialist suppliers of this kind of finance who are familiar with the local economy. For example, if looking at commercial loans Northern Ireland may be impacted by the outcome of Brexit negotiations. Borrowers may look for specialist advice found at sites such as such www.assetfinanceni.com/.

Short-term loans can be surprisingly affordable, and even cheaper than traditional long-term loans in the current economic climate. Shop around to find the best deal based on prime interest rates plus a premium, with this being calculated based on the risk your company presents to the lender.

One advantage of a short-term loan is that it can help to build up a credit rating as you make your payments over a shorter period and are less likely to default.